I have long espoused that consumer sentiment is the most important driver in our economy. When sentiment is in the doldrums, the economy slows, and in contrast, when sentiment is buoyed by the average consumer feeling good about their jobs and their future, the economy expands.
But there is another indicator that I have kept my eyes on for decades, as it is another important metric in projecting the strength of the construction economy, and its long-term future: population growth. The reason for this is that headcounts increase demand for housing, retail, services and infrastructure. A look back at the history of population growth is instructive, and a study of future projections is cause for enthusiasm about what it means for the construction economy.
Population. The United States witnessed a surge in population growth beginning at the turn of the 20th century, when immigration outpaced what demographers call “natural growth” (domestic births less deaths) for the first time in American history. From 1892 to 1924, approximately 12 million immigrants were processed through Ellis Island, and as famous a landmark as it is for welcoming immigrants during that era, immigration was also occurring at other major ports in the southern and western United States.
By the end of the 1920s, population growth driven by immigration started to ebb decade by decade, reaching an all-time low in the 1970s. Since then, there has been a growing influx of Hispanic and Asian immigrants into the United States, and the last 20 years has also witnessed big increases in immigration from India and the Middle East.
This long history of welcoming immigrants comes at a particularly important time in population history, as the graying of America portends a slowdown in natural growth. Remember, the Baby Boom of the mid-20th century combined with unprecedented home financing inventions such as the conventional mortgage, massive infrastructure investments like the Eisenhower Interstate System and suburban sprawl, marked a period of unprecedented growth in America’s construction industry.
The Future. But the outlook for the future is strong. Our population will grow from 331 million in 2020 to 352 million in 2030, for an additional 21 million people. Household counts are currently at 131 million but are expected to grow to 144 million by 2030 for a net gain of 13 million new household formations.
Between 1950 and 2000, the combination of population growth with declining household size made for a robust home-building industry and the related construction it supported. During this period, the population grew by 87%, while the number of occupied housing units grew by 144%. In a stunning statistic, it is expected that for every two new residents in the U.S., one new housing unit will have to be built starting in 2030.
Demographics. Along with immigration and natural growth, demographic changes in household composition have helped drive construction growth. In 1900, there were 4.60 persons per household, which fell steadily to 2.59 person per household in 2000 and fell even further to 2.54 in 2018. Declining household size means more homes are needed for the same population. For example, 1 million people in 1900 would have occupied about 217,000 homes, but in 2000, they occupied 386,000 homes.
The age mix is also changing, because America is graying. The country will reach that demographic milestone in 2030 when all boomers will be over the age of 65. Between 2016 and 2060, the population under age 18 is projected to grow by only 6.5 million people, compared with a growth of 45.4 million for the population 65 years and over. 2034 marks the year when the demographic scales will tip – older adults are expected to outnumber children for the first time in U.S. history. Many will be single heads of households as spouses pass away and will be an important driver in household formations.
Keep your eye on population growth as you plan for your business, as like sentiment, it is a key factor in the health of our construction economy.
About the Author
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.